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Title: Asymmetric Information between Employers
Resulting in 1 citation.
1. Kahn, Lisa B.
Asymmetric Information between Employers
Presented: New York, NY, Society of Labor Economists Annual Meeting, May 2008.
Cohort(s): NLSY79
Publisher: National Opinion Research Center - NORC
Keyword(s): Firms; Learning, Asymmetric; Modeling; Workers Ability

Employer learning about workers' abilities plays a key role in determining how workers sort into jobs and are compensated. This study explores whether learning is symmetric or asymmetric, i.e., whether potential employers have the same information about worker ability as the incumbent firm. I develop a model of asymmetric learning that nests the symmetric learning case and allows the degree of asymmetry to vary. I derive testable implications for the prevalence of asymmetric learning involving a new dependent variable: the variance in pay changes. Using the NLSY, I employ three distinct identification strategies to test different predictions of the model. I first test whether laid-off workers appear negatively selected compared to workers who lost jobs in plant closings, by comparing the variances in pay changes at their new jobs. I next exploit the fact that groups of workers differ in their variances in ability -- based on economic conditions at time of entry into a firm -- to show that incumbent wages track ability more closely than do outside firm wages. Finally, I provide additional evidence using the fact that learning about ability is more symmetric for some occupations than for others. All three cases favor the asymmetric learning model and suggest that the effect on wage setting is significant both statistically and in terms of economic magnitudes.
Bibliography Citation
Kahn, Lisa B. "Asymmetric Information between Employers." Presented: New York, NY, Society of Labor Economists Annual Meeting, May 2008.